New Delhi, Feb. 16: Insurance policy holders can rest easy for now: insurers are not planning to raise the amount they pay as premium by tacking on the 10 per cent service tax and the 2 per cent education cess the government imposed last July.
State-owned Life Insurance Corporation and private insurance companies have decided to absorb the 10 per cent service tax on the risk premium of life insurance policies. The insurance industry is also likely to bear the 2 per cent education cess for this financial year.
'We will not charge service tax from policy holders this fiscal,' said LIC chairman R. Bhardwaj.
Frank Koster, managing director and chief executive of ING Vysya Life Insurance, said: 'For this financial year, we will absorb the service tax.'
But the respite may only be for this year as insurance companies expect some clarifications they have been waiting for ' and which have stopped them from collecting the tax from policy holders ' to come in this budget.
The tax was imposed in the last budget. Later, a notification was issued giving insurance companies the option of paying the 10 per cent service tax on the annual risk premium or 1 per cent of the total premium collected.
The premium that every policy holder pays every year is supposed to be broken into two components: the risk premium and the investment amount. Insurers are still waiting for clarifications from the government on technical issues that will allow them to make a proper determination of the two components.
Moreover, they are daunted by the tedious task of classifying the two categories for each policy holder.